12.4.2 From bail-out to bail-in

Before discussing the different forms of burden-sharing, it is useful to point out that there is a transition from “bail-out” to “bail-in”. As explained in chapter 4 of this PhD-study, the BRRD introduced the bail-in tool, according to which shareholders and (unsecured1) creditors have to fully contribute to the bank’s resolution. One of the general principles governing resolution is that creditors of the bank under resolution have to bear losses after the shareholders (in accordance with the order of priority of their claims under normal insolvency proceedings).2 All creditors have to bear losses, unless they are excluded from the scope of the bail-in tool by Art. 44(2) or (3) BRRD.

One of the developments in the run-up to the BRRD that is worth mentioning is the Financial Sector Adjustment Programme for Spain. The Memorandum of Understanding on Financial Sector Policy Conditionality (MoU) of 20 July 2012 included several principles regarding burden-sharing.3 Pursuant to point 17 of the MoU, the Spanish authorities would require burden-sharing measures from hybrid capital holders and subordinated debt holders. To this end, subordinated liability exercises (SLE’s) would be implemented. Point 18 of the MoU provided that the Spanish authorities would adopt the necessary legislation to allow for mandatory SLE’s if the required burden-sharing was not achieved on a voluntary basis. This legislation consisted of Real Decreto-ley 24/ 2012 de 31 agosto (‘Royal Decree Law 24/2012’) and the subsequent Ley 9/ 2012 de 14 noviembre. This legislation has been referred to as “the Spanish bail- in tool”.4 To some extent, this legislation was in line with the proposal for the BRRD (“en linea con la propuesta de directiva”).5 This illustrates that already before its adoption, the BRRD had an impact on the burden-sharing required by Member States.6

The proposal for the BRRD had an impact on the Commission State aid control: to some extent, the 2013 Banking Communication anticipated on the BRRD. The 2013 Banking Communication explicitly requires a maximum contribution from shareholders, hybrid capital holders and subordinated debt holders. However, unlike the BRRD, the 2013 Banking Communication does not require a contribution from senior debt holders.7

The 2013 Banking Communication thus introduced clear requirements for burden-sharing. Previously, point 24 of the Restructuring Communication indicated that it was “not appropriate to fix thresholds concerning burden-sharing ex ante in the context of the current systemic crisis”. The absence of ex ante thresholds resulted in “diverging approaches to burden-sharing across Member States”, as the Commission observed in the 2013 Banking Communication. This, in turn, resulted in divergent funding costs for banks and would risk undermining the level playing field. For that reason, the Commission decided to raise the minimum requirements for burden-sharing.

Broadly speaking, the Commission’s approach toward burden-sharing is characterised by an increasing strictness. In that regard, it is worth stressing that an evolving policy does not mean that the principle of equal treatment is violated. As explained in section 6.7.3, I am of the opinion that the principle of equal treatment allows for policy changes.